Will Euro collapse by 2013?

A sculpture showing the Euro currency sign is seen in front of the European Central Bank (ECB) headquarters in Frankfurt Photo: Reuters

Eurozone will probably cease to exist by 2013, according to a new study published on Monday.

Sliding euro and falling states expenditure will avert economic recovery in Southern Europe, widening the gap between the core Eurozone and peripheral countries, said Centre for Economics and Business Research (CEBR), UK.

“New forecasts for the Eurozone imply need for severe adjustment measures unacceptable to electorates in Southern Europe,” the report said.

Jean-Claude Juncker, head of eurozone finance ministers, on Saturday had cautioned that the ongoing debt crisis of Greece and other countries in the region could hit Italy and Belgium, Suddeutsche Zeitung, a German daily reported.

Noting that the crisis could have disastrous effect on the currency of the region, euro, he warned we are playing with fire.

If Greece was deemed to be a defaulter that would have drastic consequences for the rest of the eurozone, he said.

“Sooner or later both the Greek population and international creditors will tire of fighting a loosing battle, leading to a break-up of the currency union as Greece pulls out, probably followed by other countries,” said Douglas McWilliams, chief executive of Cebr.

Many British lawmakers and politicians, including London Mayor Boris Johnson, are calling for Greece to default and exit the euro.

CEBR said without a euro breakup, growth in Southern Europe will be below 1.5 percent every year until 2015.

A combination of austerity packages, exports held back by the overall value of the euro and the structural impact of low tech exports facing massive competition from East Asia means that the prospects for growth for Southern Europe in the Eurozone are bleak, the research firm said.

“Germany has no choice but to compromise in this round of bail-out negotiations. The rewards of a stable euro outweigh the cost of further loans from Germany, even if these will not be repaid fully,” said Tim Ohlenburg, senior economist, CEBR.

“The eventual breaking up of the Euro is likely to damage the solvency of various European banks, especially in France. The danger of knock-on effects means that a bailout like that which followed the Lehmans collapse will be required, though the extent of it will depend on how quickly the authorities manage the process,” said McWilliams.